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loan contract to require the borrower to raise its assessments. FEASIBILITY STUDY REVIEW. The CWCB staffs review of the borrower's financial capability takes place during the feasibility process, It is at this phase that the borrower must show that the project will be technically and financially feasible. A 3D-year financial projection is made using CWCB's Guidelines for Financial Assistance. This financial projection, referred to as Schedule of Revenue and Expenditures (sample attached), is performed by the borrower and/or its engineering consultant and examines the borrower's total income and expenditures, The expenditures are divided into five categories: (1) operation, maintenance and replacement; (2) emergency operating reserve fund (10% per year of the O&M accumulated for ten years); (3) loan payment reserve fund (10% per year of the annual payments accumulated for ten years); (4) payments of the CWCB loan; and (5) payments on other loans. The analysis is based on the actual current income and expenses, and then projected over the 3D-year period. The analysis of the Schedule of Revenues and Expenditures determines if the borrower has income is adequate to cover the expenditures. If not, the company must raise its assessments or the project will not be financially feasible. ANNUAL REVIEW OF BORROWER'S FINANCIAL CONDITION. To stay aware of a borrower's financial ability, we are developing a plan to request that each borrower provide us with a copy of its annual financial report, This will enable staff to annually monitor the borrower's financial condition and ability to cover debt service, all costs of operation and maintenance, and all other costs, e,g., reserve accounts, and will enable staff to intervene, if necessary, and request the borrower to raise its rates in accordance with the terms of the contract. CWCB's AUTHORITY TO REQUEST INCREASES IN ASSESSMENTS, The CWCB loan contract contains a clause that requires the borrower to levy assessments to provide sufficient funds for operation and maintenance, emergency repair services, replacement reserve and debt service reserve pursuant to its statutory authority, articles of incorporation, by- laws and resolutions. For most Colorado corporations we have contracted with, if the assessments are not adequate, and the stockholders fail to approve an increase, the board of directors of the corporation has statutory power to raise the assessments. IMPLEMENTATION. To im'plement this plan, the staff will prepare recommendations, to be incorporated into our Guidelines, for a financial management plan for ditch and reservoir companies that will enable the borrower to maintain an optimal financial condition, and will develop procedures for obtaining the borrower's annual financial statement, reviewing the information, and responding when a financial statement raises concerns about the borrower's ability to meet its expenses. STAFF RECOMMENDATION This memo is provided for informational purposes, and the staff would be happy to answer any questions that the Board might have, . . .